What we get..
Posted on 05/14/2006 1:59:13 PM PDT by RobFromGa
FAIRTAX: A Primer Now that the author of the bill, John Linder, admits in his co-authored book "The FairTax Book" that there in no such thing as "Keep 100% of your paycheck, while prices stay the same", let's examine where that leaves the FairTax:
WAGES: It has been made clear by many proponents of the FairTax that they are expecting 100% of their current gross pay, and that many employer/employee wage relationships, including those for government workers are controlled by contract. So, we'll assume every wage earner gets to keep 100% of their current gross pay. Everyone can figure out for him or herself what that gives them in terms of a take-home pay increase.
BUSINESS COSTS: If we assume that businesses get to keep their half of the payroll taxes (7.65% of all payroll costs up to first $95k per employee), plus taxes on corporate profits (average <2% of Cost of Goods sold) and some tax compliance savings (being generous we'll call this 1% savings), this gives the business about 8% of cost savings with which to potentially reduce prices.
PRICES: For domestic goods, if we assume that the entire 8% is passed along to the consumer, this means that pre-tax prices will be 92% of present day prices. That $10 twelve pack will now be $9.20. Of course, the twelve pack of imported beer is still $10 pre-tax. Once the 30% FairTax is added, the price of the domestic beer will be $11.96 and the price of the imported beer will be $13.00 even. So, domestic prices will go up about 20% and imported item prices will go up about 30%.
GOVERNMENT EXPENSES: Since the government expects this plan to enable them to purchase the same things they purchase now, they will need to raise sufficient revenue in order to achieve purchasing power parity. Since they will be paying the 30% FairTax on every item, we can assume that for stuff they buy, they will see the same 20% price increase on domestic items and 30% increase on imported items as other end consumers. So they will need to increase their dollar intake by this 20%+ to enable them to buy the same amount of stuff. And, of course all government salaries will have the 30% FairTax paid on the salary, less the employer half of the payroll taxes, so this is a net 22.35% increase in the cost of the entire payroll of the US government (and states too, but that is another can of worms).
ENTITLEMENT COSTS: Since the social security payments are linked to CPI, when this 20%+ price rise slams through the economy all the social security checks will have to be raised to cover this massive FairTax caused inflation. They will rise by at least 20%, and a litle more because the basket of goods will include some imported items like oil. Medicare/medical expenses will have the FairTax added, for a 20%+ increase.
GOVERNMENT PURCHASING POWER PARITY: with the cost of Payroll, plus everything they buy, plus the entitlements, all going up 20% plus we can assume that the governement will need to collect approximately 20%+ more of the new inflated dollars in order to buy what they are today with today's more stable dollars.
FAIR TAX RATE: Assuming nothing else changes regarding purchasing behavior, size of the government, etc. this means that the 30% FairTax would need to immediately raised 20% (to 36%) just to bring in all the inflated dollars that are required to fund the govt at present level. The price of domestic beer is now $12.50 and the import is $13.60.
SAVED MONEY: All dollars that are post-tax savings would be devalued by the FairTax inflation by 20% in terms of what they can buy with their hard-earned and saved money.
Does this sound like a utoia to anyone? Isn't it very likely that a 36% sales tax will cause consumption to suffer and/or transactions driven into a barter system or the black market where they cannot be taxed. And every dollar that is taken from the legitimate economy is another increase that is needed in the FairTax rate in order to feed the government the amount of money it needs.
Isn't is likely that we will end up with an income tax again on top of the FairTax when this all plays out?
Here's where I think we are with how the FairTax would actually work in practice...
Feel free to comment.
Incoming!
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Fair Tax Misrepresentation PING
Besides, the nrst makes illegals pay tax % exceeding any legal citizen's percentage.
Also, the nrst allows US manufacturers to better compete in the world market. It's hard enough for us to compete against labor costs so much lower than ours!
While the nrst is not perfect, it's a far cry better than any income tax... border adjustable too.
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
But if payroll runs 35% of your gross, that means the payroll savings is only 3% of the gross. And nobody is going to waste time lowering prices for a 3% (or even 8% change in costs) when they don't know how their customers are going to react to paying the 30% sales tax surcharge.
What we get..
Lets look at the "Prebate" part of HR 25. Along with keeping the "whole paycheck", comes a monthly $189/ per citizen in "your household".
My widowed Mother-in-Law will have that $189 to cover the increase in prices, each month. My kids will see their allowances go up; but by far less than their "prebate value". Our monthly "household budget" will have an extra $600 from "prebate money" to pay those "Higher Prices".
The tiny Corporation that I work for won't be paying income tax. The Price of its service won't need to include those Dollars, either. There is no "Corporate Income Tax in HR 25.
I did leave out the PREBATE, that socialistic monstrosity that puts every American on the dole.
And as for your tiny corporation paying corporate taxes, if they are an S corp they pay no corporate taxes which is they way most tiny businesses are structured.
This is my main hangup with the Fair Tax and have yet to see it really addressed. It's very clear to anyone who looks at it clearly can see the problem with post tax savings.
Whenever I raise this on FR, I am consistently told that I don't understand, that I am missing something, etc. No real attempt to explain this problem, though.
One advocate of the FT on FR a few weeks ago was honest and point blank said that it would just be a bullet that people would have to bear. I have no interest in taking that bullet, but at least he was honest and direct about it. KUDOS to that Freeper (who's name escapes me, sorry)!
It wouldn't be an issue if the "prices will stay relatively the same" with the FairTax included had been true, because then there would only have been inflation on imported items. It is only because that was a lie and prices are really going to have to go up by 20%+ that the after-tax savings take a hit.
Amd that hit all by itself is enough to kill the plan.
Rep. Linder is fond of calling his plan a "Tax on Accumulated Wealth" and this is exactly why it is so.
Typical FairTaxer tactic, every once in a while one will admit some part of the truth but the rest will disagree with obvious facts staring right at them.
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
It's very clear to me that post taxes savings is handicapped by a second tax bite, that newly earned income doesn't have to absorb.
$1 saved is worth less than $1 newly earned.
That stinks, though I love earning money! :-)
Our monthly "household budget" will have an extra $600 from "prebate money" to pay those "Higher Prices".WOW! I guess that means we'll all have EXTRA money from the magic money tree...
I vote we RAISE the amount of the (GAG!) "prebate" so we don't pay any taxes at all and EVERYTHING IS FREE!.
Since they will be paying the 30% FairTax on every item.
The Fed govt doesn't pay sales tax now on items they purchase. I see no reason for them to do it with the Fairtax either.
Read the bill, it's another part of the scam to make the Fairtax rate lower than it really is. The government pays 30% FairTax to itself and counts it as revenue. Another double-counting error by the FairTax crowd...
Yes, there is a "Dole" quality to the Prebate. The dole goes to Resident Citizens ONLY. There is no Corporate Dole or "prefered industry" Dole.
JUMBO Spenders want the FRUGAL Families to overlook the Prebate. Big Spenders are spinning this one.
Some of us have a deep knowledge of the current system - and don't hate it any less than the next guy - we're just not willing to drink the koolaid.
A few of us pay more income tax per year than most people earn in a lifetime.
Ever heard of a "little green card" the IRS will make you sign if the statute of limitations is running out on them; else be prepared to be audited every year for the rest of your life...
Better plans have been proposed - are in use around the world (Flat Tax) but FT's would rather spend nearly all their time and energy shouting down the voices of reason - and experience - instead of debating the hard facts of how society functions, how government was "born to steal", and how 2 simple things can fix it.
A )Flat Taxation.
B) Constitutional limitation on all spending, not just the 10-15% the public is told about. (in ways meant only to scare, not to inform.)
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
I am with you on this one. It is not the main, but only hangup for me. And even if - by decree- all already taxed moneys are up-indexed at the moment of transition, so that the savings account which used to be $10000 becomes $12500, such a development would be wildly inflationary.
Its fascinating the same people opposed to paying less in taxes want to keep the IRS around.Where is that written? The Fairtax is revenue neutral. The only ones paying less tax would be corporations and businesses not dealing in retail sales. My service business, hence my customers would be paying MORE not less tax.
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
Let's see your analysis of how prices are going to be a lot less than what they are now. I showed mine in the opening post and I say prices are going up 20%+ or thereabouts if people keep their full paychecks and businesses keep the employer half of FiCA.
Where are your calculations showing the price decline? Wishful thinking does not substitute for the truth.
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
If the worms had been making hay getting greater energy independence (more exploration, alternate fuels, more refining) we wouldn't be suffering high prices now.
Once [government] spending is controlled by law, tax reform is a walk in the park.
To the dollar, I know how much income tax I paid, it's one line all added up on a tax form each year. And how much I withheld is shown as a YTD amount on every paystub.
I doubt that a single FairTaxer can estimate to within 25% what they paid in cumulative sales taxes last year.
Some people may think that, I am under no such misconception. But only C corporations pay corporate taxes and the amount of revenue collected as income and payroll taxes dwarfs the corporate taxes.
I am in favor of eliminating all corporate taxes within the present system, along with spending reductions.
Please note I did not say limiting spending is a reason not to change taxation. I said spending must be limited before meaningful tax reform can even begin.
(Denny Crane: "Every one should carry a gun strapped to their waist. We need more - not less guns.")
But they aren't removing a plethora of taxes. The primary taxes that are being removed are being given to the employees in the form of "keep 100% of your paycheck". I've listed the taxes that will be removed and they don't add up to even 10%. Let's see your analysis rather than your platititudes.
We really don't know if taxes will rise under a FairTax system.
We do know they plan to start by adding a 30% tax on every retail purchase, that is a tax rise.
No, they plan to start by eliminating the taxes that the nrst will replace. Further, the tax is not on every retail purchase.
Well if we drop the fictitious pretense corporations and businesses pay taxes, why wouldn't we not see them pass on the savings to their customers?I guess you're going to ignore the fact that I said my customers would pay (30%) MORE for my service not less...what savings are you talking about exactly?
I would still have to pay tax when I spend my money...That's why they call it a "replacement" tax.
It is simultaneous.
That's right. This is why some say purchasing power will remain constant. Folks still pay tax, just pay the nrst instead of income, payroll, and embedded taxes.
Is it? You said otherwise two posts up.
We really don't know if taxes will rise under a FairTax system.Then you also don't know or rather do know it's wishful thinking that businesses will arbitrarily pass on all savings to consumers.----
What I'm talking about isn't wishful thinking but rather patterns of human behavior and economic rules that have driven life for thousands of years.
TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES
SEC. 101. INCOME TAXES REPEALED.
SEC. 102. PAYROLL TAXES REPEALED.
SEC. 103. ESTATE AND GIFT TAXES REPEALED.
THe first things legislated by the bill are above. If this is what you were referring to, you were wrong. If there is some other reason you believe the tax will be added onto existing prices with repealing the old taxes first, please share.
Not wishful, dumb. It's not "arbitrary" at all. Savings must be passed on in the form of lower prices, higher wages, or improved ROI (all benefit the individual). Competition dictates the breakdown and it most certainly will vary by industry and business.
You appear to be confused.
I responded by saying existing taxes would be repealed first and that not all retail purchases are taxed under the nrst. What did I confuse?
It's the ultimate "catch-22" Prices go up 30%, my sales go down 50%, I'm stuck with the embedded tax cost of my pre-existing inventory, I go bankrupt.
Go ahead and declare bankruptcy while your competitors laugh. Read the bill.
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